INTC: Ultimate cockroach Chip Maker.
Glory Days.
$Intel(INTC)$ (short for Intgrated electronics) was founded on 18 Jul 1968.
This 56 y.o establishment had seen “better” days, compared to where it is today.
In 1971, it successfully created the world's first commercial microprocessor chip - the Intel 4004.
However, recognition and success was not forthcoming due to lack of applications.
It was not until the early 1990s. with the proliferation of personal computers (PCs) that Intel’s microprocessor chips became its primary business.
Partnership between Microsoft’ Windows & Intel, aka "Wintel", became instrumental in shaping the PC landscape and solidified Intel’s position.
Throughout the 90s, it was the dominant supplier of PC microprocessors, with a 90% market share.
Fast forward to 2023, its domination of the PC world has whittled down to 68% only.
To be conferred the title as the world's “largest semiconductor chip manufacturers by revenue and for nearly a decade is no mean feat.
Yet, its ability to squander off this accolade / honour, could be attributed to (a) its Board of Directors (BODs) and (b) its four Chief Executive Officers (CEOs) from 2000s:
Craig Barrett : 1998-2005.
Paul Otellini : 2005-2013..
Brian Krzanich : 2013-2018.
Bob Swan : 2018-2020.
Failures of successive CEOs to steward the ship efficiently, speeded up Intel’s fall from grace, in addition to following reasons:
(1) Increased Competition.
Intel has been struggling to keep up with competitors like $NVIDIA Corp(NVDA)$ and $Advanced Micro Devices(AMD)$ , particularly in the AI and semiconductor markets.
Despite launching new products like the Gaudi 3 Accelerator, Intel has lagged behind in technological advancements.
(2) Shifting Market Dynamics.
Demand for high-performance computing, driven by artificial intelligence and data-intensive applications, has favored companies like Nvidia.
Intel's focus on traditional PC and server processors may have made it less well-positioned to capitalize on these emerging trends.
(3) Financial Struggles.
The company reported negative free cash flow (FCF) and significant expenditures on property and equipment.
This financial strain has raised concerns among investors about Intel's ability to sustain its operations and growth.
YTD Loss !
As of 20 Sep 2024
Intel’s all-time high closing price was $62.07 on 09 Apr 2021.
Its 52-week high is 51.28, that is +234.66% above current share price.
Its 52-week low is $18.51, that is -15.25% below current share price.
Intel’s average stock price for last 52 weeks is $36.25 per share.
YTD, Intel share price has fallen -54.31% to $21.84 per share (as of Fri, 20 Sep 2024).
Cockroach Chip Maker ?
You may not know but cockroach has come to symbolize resilience & survival.
Its abilities to (a) thrive in harsh conditions and (b) survive in various environments, makes them a symbol of resilience & adaptability.
It is in this context and spirit that Intel is being associated with the cockroach insect.
In spite of all the headwinds encountered, the US government 'cannot afford' to let Intel struggle over the long term says one analyst.
On Fri, 02 Aug 2024, Intel Corp.'s stock met its worst daily drop in decades with a massive -28% plunge in stock price, after disappointing Q2 earnings and Q3 2024 outlook.
This shaved more than $30 billion off its market capitalization.
The company is currently undergoing a $10 billion cost-cutting program because of excessive spendings and massive losses.
Drastic actions included:
Dividend suspension.
Widespread layoffs.
Slashing capital expenses.
The abovementioned issues were sufficient to cause deep distress to its investors.
On closer review, Intel's might have fallen even more if it wasn't for one “advantage” it has.
That is, Intel is a US domestic “technically advanced” chip manufacturer and the US government is finally “awake” and interested in propping up local players in the chip market.
Bernstein Research, Senior analyst - Stacy Rasgon, remarked that Intel might have been in serious trouble if it did not get help from the government or other companies.
US government assistance included:
$8.5 billion in direct funding.
$11 billion in loans through the Chips Act.
Clearly showing that the US government is trying to help American companies compete in the vital chip industry.
Apart from grants and loans, it has also been reported that US Dept of Commerce has had private meetings with a handful of public market investors.
Commerce Secretary Gina Raimondo‘s message reinforced the importance of chip manufacturing in the US, given the growing geopolitical risk around Taiwan; where $Taiwan Semiconductor Manufacturing(TSM)$ the world’s largest contract chipmaker is headquartered.
Her effort will not go “unheeded” and will go the distance in helping Intel’s Foundry Services (IFS), that is in a need of traction, quite badly.
Without which it stands to lose close to $1.6 billion.
On 22 Feb 2024, $Microsoft(MSFT)$ has exhibited support for Intel with a $15 billion deal. (see above)
Microsoft will design its own advanced semiconductor chip and IFS will manufacture it, in a long-term deal.
Personally, I think it is only a matter of time before all other US fabless semiconductor companies plan and perhaps carve out a portion of their orders to IFS.
Just look, on Mon, 16 Sep 2024 investors rejoiced on the news that Intel Foundry and Amazon Web Services (AWS) will co-invest in a custom chip design for the latter and “announced a multi-year, multi-billion-dollar framework.
Looks like the Commerce Secretary’s charm has worked its magic and not a moment too soon, I might add!
Because of the assistance received, coupled with the drastic actions undertaken (see above), Intel should have about $40 billion more money by end of 2025.
This means Intel will live another day even though it might be different as it struggles to get its house in order and its books balanced.
My viewpoints: (mine only)
It is a “miracle” that Intel is still around, having missed out on the advent of mobile technology.
This is why I hold the BOD and the CEOs “accountable” for Intel’s lapses, for it is what will happen when a weak BOD selects “ill qualified & vision-impaired” CEOs to steward the ship.
With the advancement of artificial intelligence (AI) as the next phase in Information Technology, Intel cannot afford to be left behind in the AI-race.
It needs to get back into the game - by hook or by crook. Otherwise its imminent demise will become a reality.
Intel is still a “big player” in the chip industry as it tries to get better. Whether it can recover to its former dominance remains to be seen. Its fight for survival like a cockroach, in the face of adversity is undeniable.
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